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Proving that EMH is false requires revelation of a profitable method or at least a statistically significant edge, which then makes it vulnerable to getting exp

Proving that EMH is false requires revelation of a profitable method or at least a statistically significant edge, which then makes it vulnerable to getting exploited away. It's actually more useful if the public believes in EMH and in traders' best interest to keep their edges secret.

lutusp 14y ago
> Proving that EMH is false requires revelation of a profitable method or at least a statistically significant edge, which then makes it vulnerable to getting exploited away. Yes, true, and such an outcome ironically supports the EMH. > It's actually more useful if the public believes in EMH and in traders' best interest to keep their edges secret. Actually, it is much, much more advantageous for traders to pretend that there is a surefire winning strategy that only they know about. The problem with that plan is the fact that there is no such strategy. How do I know this? If there really was a surefire winning strategy, a trader who controlled it could (and would want to) do without any public involvement, and invest his own funds in private until he became absurdly rich. That's the obvious way to play it -- why share the proceeds, and why risk exposing the method, by dealing with gullible, ungrateful clients? The answer is that those gullible, ungrateful clients are what makes the present system work, not some secret sauce that falsifies the EMH.
- meninges 14y ago
  We are talking here at such high level abstractions and with stack of presuppositions that it's difficult for me to figure out just where to even begin explaining my point and i question if i even should. If one doesn't know of a 'sure fire winning strategy' (== strong form inefficient market hypothesis ?) ( or just statistically useful may be good enough ) one should not participate in the market in most forms ( which market, participate how ). I've heard it compared to a poker game where if you don't know who the sucker is it's probably you. The general public is misinformed about the markets and gets consistently fleeced yet keeps getting pulled in by dreams of easy money - akin to a lottery. Markets have defined purposes (theoretical, practical, legal) and serve them accordingly. Enriching 'gullible, ungrateful clients' is not the primary purpose. EMH is a useful explanation to the clients why they got fleeced, and i don't want to disprove it. It takes a lot of work to figure out how the lottery works and how to consistently game it. It's just a job.
  - lutusp 14y ago
    > ... or just statistically useful may be good enough ... If "statistically useful" means reliably above market averages year after year, then that would constitute a surefire winning strategy. There is no such thing -- if this were not so, we all would know about it by now. A tiny advantage -- a legal one, not dependent on insider trading or any other questionable premise -- however small, could be exploited to enrich the player who used it. But there is no such thing. > The general public is misinformed about the markets and gets consistently fleeced yet keeps getting pulled in by dreams of easy money - akin to a lottery. Yes, and the key to all these misleading strategies is ignorance of the EMH. Evidence for the EMH lies in the fact that, in the long term, buy & hold investors do better than players -- in the long term, on average, if all results are tallied objectively. > It takes a lot of work to figure out how the lottery works and how to consistently game it. Again, there is no such thing. If there were, businesses would refuse to use equities to raise capital, knowing they would be fleeced by the players. The only reason equities are a reasonable way to capitalize business is because it's a fair approximation of an efficient market. For the life of me, I can't figure out why people find this so hard to understand.
- meninges 14y ago
  Reading back, i actually agree with you on most points. It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. Just would like to add a distinction that EMH seems to hold from a retail clients perspective, but does not hold from a systematic / structural side. Markets are structurally exploitable. For example it is (generally) illegal for an institution to front run clients' orders, however it is ok if you are just a trader and know probable (not necessarily sure fire) locations of large orders and front run them.
  - lutusp 14y ago
    > It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. But "fairness" is what the EMH means. "Fairness" expresses in human terms what the mathematics tells us. An efficient market ruthlessly adjusts for inefficiencies and oversights, sort of like biological evolution, and evolution is the ultimate in ruthlessness and indifference to the fate of individuals. It's also fair -- each species has an equal chance to prevail. Insider trading is unfair to ordinary investors who aren't criminals. The announcement effect is unfair to ordinary investors who don't have that kind of influence over the markets. If you take away insider trading and the announcement effect, the result is ... more fair. That result is closer to an optimally efficient market. > Markets are structurally exploitable. Only by cheating (and as your example demonstrates). The SEC knows this, and they know how corrosive distrust in the fairness of equities can be for society as a whole, so they aggressively pursue cheaters. Absent cheating, equities markets cannot be gamed. Absent cheating, a long-term buy & hold position is the optimal strategy, By the way, and for what it's worth, Warren Buffett agrees.
    - meninges 14y ago
      Markets have many inefficiencies of varying persistence that don't depend on insider knowledge, speed advantages, or cheating, but using simple widely available public information, some on just the price itself. I think it doesn't validate EMH if such inefficiencies disappear if exposed, if they depend on skill and systemic knowledge rather than 'cheating' - i suppose it depends on where one draws the line between cheating and skill. Discovering and exploiting them is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. They're guided into ignorance and defering their finances to the sucky professionals who get paid for amount of assets under management rather than performance. Warren Buffet doesn't buy and hold indiscriminately. He buys things on sale during market crashes when the panicky public gladly sell to him. For example by selling put options he gets paid just for waiting for the discounts. And as a potentially controvertial aside, i think his size and connections within the government grant him hypocritical priviledges not available to the public (other than through owning his stock of course).

lutusp 14y ago

> Proving that EMH is false requires revelation of a profitable method or at least a statistically significant edge, which then makes it vulnerable to getting exploited away. Yes, true, and such an outcome ironically supports the EMH. > It's actually more useful if the public believes in EMH and in traders' best interest to keep their edges secret. Actually, it is much, much more advantageous for traders to pretend that there is a surefire winning strategy that only they know about. The problem with that plan is the fact that there is no such strategy. How do I know this? If there really was a surefire winning strategy, a trader who controlled it could (and would want to) do without any public involvement, and invest his own funds in private until he became absurdly rich. That's the obvious way to play it -- why share the proceeds, and why risk exposing the method, by dealing with gullible, ungrateful clients? The answer is that those gullible, ungrateful clients are what makes the present system work, not some secret sauce that falsifies the EMH.

meninges 14y ago
We are talking here at such high level abstractions and with stack of presuppositions that it's difficult for me to figure out just where to even begin explaining my point and i question if i even should. If one doesn't know of a 'sure fire winning strategy' (== strong form inefficient market hypothesis ?) ( or just statistically useful may be good enough ) one should not participate in the market in most forms ( which market, participate how ). I've heard it compared to a poker game where if you don't know who the sucker is it's probably you. The general public is misinformed about the markets and gets consistently fleeced yet keeps getting pulled in by dreams of easy money - akin to a lottery. Markets have defined purposes (theoretical, practical, legal) and serve them accordingly. Enriching 'gullible, ungrateful clients' is not the primary purpose. EMH is a useful explanation to the clients why they got fleeced, and i don't want to disprove it. It takes a lot of work to figure out how the lottery works and how to consistently game it. It's just a job.
- lutusp 14y ago
  > ... or just statistically useful may be good enough ... If "statistically useful" means reliably above market averages year after year, then that would constitute a surefire winning strategy. There is no such thing -- if this were not so, we all would know about it by now. A tiny advantage -- a legal one, not dependent on insider trading or any other questionable premise -- however small, could be exploited to enrich the player who used it. But there is no such thing. > The general public is misinformed about the markets and gets consistently fleeced yet keeps getting pulled in by dreams of easy money - akin to a lottery. Yes, and the key to all these misleading strategies is ignorance of the EMH. Evidence for the EMH lies in the fact that, in the long term, buy & hold investors do better than players -- in the long term, on average, if all results are tallied objectively. > It takes a lot of work to figure out how the lottery works and how to consistently game it. Again, there is no such thing. If there were, businesses would refuse to use equities to raise capital, knowing they would be fleeced by the players. The only reason equities are a reasonable way to capitalize business is because it's a fair approximation of an efficient market. For the life of me, I can't figure out why people find this so hard to understand.
meninges 14y ago
Reading back, i actually agree with you on most points. It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. Just would like to add a distinction that EMH seems to hold from a retail clients perspective, but does not hold from a systematic / structural side. Markets are structurally exploitable. For example it is (generally) illegal for an institution to front run clients' orders, however it is ok if you are just a trader and know probable (not necessarily sure fire) locations of large orders and front run them.
- lutusp 14y ago
  > It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. But "fairness" is what the EMH means. "Fairness" expresses in human terms what the mathematics tells us. An efficient market ruthlessly adjusts for inefficiencies and oversights, sort of like biological evolution, and evolution is the ultimate in ruthlessness and indifference to the fate of individuals. It's also fair -- each species has an equal chance to prevail. Insider trading is unfair to ordinary investors who aren't criminals. The announcement effect is unfair to ordinary investors who don't have that kind of influence over the markets. If you take away insider trading and the announcement effect, the result is ... more fair. That result is closer to an optimally efficient market. > Markets are structurally exploitable. Only by cheating (and as your example demonstrates). The SEC knows this, and they know how corrosive distrust in the fairness of equities can be for society as a whole, so they aggressively pursue cheaters. Absent cheating, equities markets cannot be gamed. Absent cheating, a long-term buy & hold position is the optimal strategy, By the way, and for what it's worth, Warren Buffett agrees.
  - meninges 14y ago
    Markets have many inefficiencies of varying persistence that don't depend on insider knowledge, speed advantages, or cheating, but using simple widely available public information, some on just the price itself. I think it doesn't validate EMH if such inefficiencies disappear if exposed, if they depend on skill and systemic knowledge rather than 'cheating' - i suppose it depends on where one draws the line between cheating and skill. Discovering and exploiting them is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. They're guided into ignorance and defering their finances to the sucky professionals who get paid for amount of assets under management rather than performance. Warren Buffet doesn't buy and hold indiscriminately. He buys things on sale during market crashes when the panicky public gladly sell to him. For example by selling put options he gets paid just for waiting for the discounts. And as a potentially controvertial aside, i think his size and connections within the government grant him hypocritical priviledges not available to the public (other than through owning his stock of course).